Finance
teams are the performance management captain of the corporate ship
empowered to provide the executive team, and business and support units
with real insight and understanding of past, present, and future
performance while guiding them on what the information means to each of
their constituents and how it can be interpreted for decision making.
That is their most strategic value to the business. However, because of
the explosion of information, speed of business, growing systems
through M&A and unique information capture needs of different areas
of the business not to mention growing business practice demands, such
as regulatory compliance to meet the regional, national, and global
reporting requirements, the corporation’s most important analytical
asset, finance departments, remains mired in just completing the basic
week-to-week tasks without providing this strategic guidance. As a
result, emerging trends, exploitable opportunities, efficiency gains,
addition-by-subtraction divestitures, and M&A opportunities go
undiscovered because the analytical part of finance is asleep at the
wheel. It has its proverbial head down doing the day-to-day grind of
low-value activities where this analytical blind spot can eventually
drive the company out of business. Let me illustrate.

In
the 1960′s, IBM was the 800-pound gorilla in the mainframe business
whose technology supremacy went unchallenged and superior performance
went virtually unabated into the 1970′s. They were the blue suits
bearing information-based mainframes to help companies use data to run
their large – sometimes multinational – businesses with greater know-how
about customers, products, operations, and financial performance far
more adeptly than any other technology could. Yes, they were considered
the masters of product innovation largely due to world-class business
practices and industry expertise. However, Big Blue got complacent and
far too comfortable in their long held pole position. Their inflated
confidence and market share eventually disintegrated as they missed the
advent of the new information-based technology, which, if they would
have had the right analytic capabilities in place, they would have seen
it coming; the emergence of the minicomputer. Minicomputers were
technologically simpler than mainframes but with stronger computing
power while requiring less resources to run them. To be fair, it wasn’t
just IBM that missed the advent of minicomputers. It was virtually
every mainframe company in existence at that time. This new technology
virtually wiped out the entire mainframe business such that no mainframe
business would be a major player in the minicomputer business at all.

What happened? What was missed? Who screwed up?

In my opinion, there were many failures that caused this emerging
technology to go unaddressed by IBM and others, but the chief culprit
who could and should have been prepared for it was finance. Yes, I
think it’s up to finance as the owners of business performance (past,
present, and future) to fundamentally understand the business climate –
internally and externally – to then advise their corporate constituents
on what the information they’ve analyzed means to them. For this to
happen finance needs to get a handle on its core responsibilities before
it can begin to really spot these performance-sapping icebergs that can
possibly turn into business shuttering threats.

Let’s get back to the technology story for a minute if that’s okay. Then, I’ll finish my point.

Where were we? IBM’s out because the mainframe business has gone
south – way south by way of the minicomputer. Exit IBM. Enter Digital
Equipment Corporation. DEC virtually created the minicomputer business
along with a few other aggressively managed companies like Data General,
Prime, Wang Computer, Hewlett-Packard, and Nixdorf. Did DEC and others
in the minicomputer business learn any lessons from IBM’s big miss on
the minicomputer market so as to not repeat the same mistake? Of course
not. The story of DEC’s demise rings almost too tellingly true to
IBM’s mainframe debacle of the 1970′s. In fact, the management gurus
and business journals missed it too. Digital Equipment Corporation was
considered by all who had some insight into the company’s operations as
being the ultimate technology company for decades to come. For certain
it was a featured company in the McKinsey Study that became the stellar
1980′s management book, In Search of Excellence. DEC seemed
destined for monster success. Still, despite all this fanfare, DEC
missed the next wave in computing technology, the desktop computer
market.

Again, where was finance watching past performance by measuring and
monitoring it, to get analytical insight into what the future might look
like to then advise their constituents across the business on what all
of this means to each one of them? Answer: Heads down.

The desktop computing market was predictably seized not by DEC or one
of its minicomputer compadres but by Apple Computer, Tandy, Commodore,
and IBM’s PC-division. (Yes, IBM can’t be held down for long!)

What happened next? Like Rick Blaine says in the movie Casablanca,
“Play It Again, Sam.” Apple, Tandy, IBM and the rest of the desktop
computer gang focused on making the best desktop computers they could
but ended up missing the next new, new thing. Apple Computer and IBM
lagged 5 years behind bringing the latest-and-greatest technology rage
to the market: portable computers. That market was owned by Silicon
Graphics, Sun, and Apollo – all newcomers to this market.

In
each case, the leading companies mentioned were regarded as the gold
standard given their product excellence and operational execution only
to be quickly pushed aside by an out-of-nowhere, technologically
superior solution that reset the market’s expectations rendering the
prior leader’s solution frumpy and stale. Missing emerging trends in
the marketplace and not adapting to them quickly enough can ring a death
knell for most companies. Think Wang, Silicon Graphics, Apollo. For
others, this misstep can set them back 5 or even 10 years before they’re
back on their feet again.

As a note, in the above example, I simply chose the technology sector
but we could have easily used the retail merchandising sector (Think
Sears vs. Nordstrom) or retail books (Think Barnes & Noble vs.
Amazon), or Automotive (Think GM vs. Toyota). Each situation is an
example of a failure to see the changing landscape which, I believe,
finance is mostly at fault for squandering these opportunities.

How come finance? I think finance failed their companies in each
instance because they weren’t effective enough in managing the
day-to-day, low value tasks which, if they had them under control, they
would have greater leverage to spend time on higher-value practices like
forecasting and business analytics to uncover data points that can help
the entire business spot emerging market forces before it’s too late to
respond. This responsibility to identify these threats and
opportunities lies squarely on finance. If not them, then who else? Be
careful because whomever you’ll name will probably expect finance to
provide them with the meaningful insight into performance results across
the business as well as external information, which, again, means it’s
incumbent on finance.

So, how does finance get to that point where it’s able to provide
this kind of insight with the resources it has because Lord knows it’s
not going to get additional headcount? Well, it all starts with finding
a way to better leverage the resources it has. This requires finance
teams to get the lower value tasks automated as much as they can so that
they can off-load these process management steps to take on added
capacity for these analytic practices.

What are the world class finance teams doing to be analytic leaders
in their industry? World class analytic finance teams have these
repeatable practices down to great consistency and repeatability from
end-to-end:

These practices are the foundational elements required for finance to
be the advisor in providing guidance to the business. Excel at the
practices mentioned above and you’re soon positioning your analytic
experts on your finance team to do the real analysis they’re supposed to
be doing. It’s incumbent upon the CFO’s finance department to provide
this guidance and leadership given finance’s role as the performance
managers for the company. It is therefore finance’s job to provide
insights into past, present, and future performance but also trends,
anomalies and market opportunities that become visible only after
thorough analysis of the information-based business results gleaned from
systems, i.e. ERP, CRM, SCM, etc. and processes, i.e. forecasting,
what-if scenario analytics, etc.

This finance role is looked to not only explain past business
performance and its financial effects but also advise and guide the
strategy in determining where to make investments with the resources at
hand. The CFO’s analytics team – finance – needs to spend its time not
on the everyday execution of basic, low value process steps, like
compiling, validating, and reconciling data for various internal and
external reporting needs but also analyzing past, present, and future to
present guidance on what’s happened, what’s happening now, and what
could happen. Only with an infrastructure in place to easily manage
these basic elements of the finance team’s mandate can the real
value-added analytic insights come to light. Otherwise, their companies
will continue to drive through its business climate with a perpetual
blind spot on what’s coming soon rendering them the next Tandy Computer,
Silicon Graphics, or Apollo.

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We
often hear Business Analytics being so many different things that we
feel it’s near impossible to get a handle on what it really is. I’m
sure you were just getting used to the idea of what Performance
Management is and now we throw Business Analytics into the equation. To
make matters worse, there’s a great deal of prognosticators, thought
leaders, and industry analysts who still are married to the idea of
calling the space Business Intelligence. I thought it might make sense
to pass along a simple explanation of each without all of the Big 5
consulting speak that usually goes with it. So, here you are.

BI is where the historian in all of us comes out. This is where
you’re doing rear view mirror analysis, querying, reporting, with
enabled “alerts”, real-time monitoring, dashboards, scorecards, and
visualization focused on past performance. This is your investigative
practice area asking the questions ‘what happened?’ and ‘how are we
doing?’ followed by thorough analysis of the detail behind the answers
to these questions, i.e why are we on- or off-track?

Performance Management (“The Pragmatist”)

Performance Management builds off of “The Historian” to include the following: planning, budgeting, forecasting, and scenario modeling; customer and product profitability, i.e. profitability modeling and optimization; strategy management; governance, risk, and compliance;
and, financial consolidation and external reporting. Performance
Management is “the Pragmatist” who looks not only at monitoring and
analyzing past performance (“The Historian”) but also wants to then use
this past performance to help determine what the future outcomes are
expected to be (Think budget/forecast), which is based off of these past
results weighed against current conditions and intuitive insight, i.e.
the “knowns” and “unknowns” about today and the foreseeable future.

Also included is the practice of governance, risk, and compliance.
Of course, there needs to be rigor and accountability around these
processes, including stringent compliance controls to meet all
regulatory requirements. In addition, risk assessments are a necessary
component of performance management should not only your performance
assumptions (Think Risk-Adjusted Forecasting) be wrong not to mention
other business risk elements of the business including strategic risk,
market risk, credit risk, IT risk, operational risk, etc. The practice
of governance, risk, and compliance
enables customers to identify, manage, monitor and report on risk and
compliance initiatives across the enterprise, helping businesses to
reduce losses, improve decision-making capabilities about things like
resource allocation, and, ultimately, optimize business performance.

“The Futurist” looks at everything the “The Pragmatist” does but then runs what’s called Predictive Analytics
against the Performance Management data that you already have to
uncover unexpected patterns and associations and develop models to guide
what should be done next. It turns the human element in planning,
budgeting, and forecasting on its head by applying pure user-enabled
algorithms and customizable statistical analysis providing you with the
data driven answers. More simply, with predictive analytics companies
are able to prevent high-value customers from leaving, sell additional
services to current customers, develop
successful products more efficiently, or identify and minimize fraud
and risk. This is all being done by businesses all over the world
today. Predictive analytics is just what its name suggests: It’s about
giving you the knowledge to predict. [Business Analytics = [Performance Management] + [Predictive Analytics]

The evolution of the CFO from cost extractor and compliance enforcer whose primary concern had been to ‘manage the numbers’ into providing strategic support and organizational leadership helping drive profitability and growth for the enterprise certainly didn’t happen overnight. There’s been a series of events over the years driving this change, including the advent of Sarbanes-Oxley (Think Enron/Arthur Andersen/Worldcom) to today’s Dodd-Frank as well as greater internal and external demand for performance data. In addition, there’s increased CEO and board interest and oversight into the ‘World of the CFO’ where board members require more than just a simple view of the annual operating plan; They want it all now given that they have to put their John Hancock on documents like no time before. (The threat of a little jail time for malfeasance has a way of getting people to sit up straight and pay closer attention too.)

Given the CFO’s more strategic role and influence in companies today it’s no surprise that the entire finance function’s visibility and criticality requires more demands on it too. In an ideal world, the CFO’s finance department has its eye on implementing best practices to streamline inefficiencies and error-prone efforts. Yes, implementing best practices sounds good on paper but the common response I hear from finance departments concerning why they’re not being adopted right now makes me think of the Beach Boys’ tune, “Wouldn’t it be nice…if we only had the time.” (Note: Click that link if you want the actual Beach Boys song playing in the background while you read this post.)

Still, I’m consistently hearing that the goals for CFO’s and their finance departments remain the same. They are:

Linking financial to operational plans

Guaranteeing the quality and accuracy of financial numbers for timely, sustainable compliance

The global economic crisis, which began with the U.S. housing market’s nose-dive in late 2007, continues to burn brightly across nations far and wide. This financial meltdown has served as a jack-hammered catalyst for corporations today to re-evaluate their risk management practices – assuming, of course, they had one in the first place. Most didn’t. Apart from very large, globally diverse corporate behemoths, formal risk management practices didn’t really exist outside of the top-level business strategy sessions conducted between CEOs, CFOs, and other members of the executive team.

Until recently, boards of directors were simply there to listen and learn what the strategy and execution plan was. Not much more was asked. Part of the problem was that back in the day – let’s call it pre-crisis – having some celebrity status for board membership was de rigueur. That’s all gone, of course, in the name of being more legally accountable in their roles where board members are actually looking after the business in ways unlike before. (There’s a famous story about a Goldman Sach-delivered board presentation where Gerald Ford stopped the presenters and asked, “What’s the difference between revenue and equity?” …He was our U.S. president at one time. Ouch.) Yes, now boards are more actively involved in the business including taking an interest in not only the business strategy, but also what the risk assessments are for it and how they’re going to be mitigated, including the next-step plans to address them in the unlikely event they come to fruition. For all of these reasons, risk management practices arebecoming more pervasive and universally adopted by organizations, both large and small. These companies are expected to meet the demands of an uncertain and ever-changing marketplace not to mention evermore interested (read activist) shareholders, regulators, compliance hawks, and don’t forgot those employees. Yes, regulatory measures like Sarbanes-Oxley, Basel II, Dodd-Franke and other forthcoming reporting requirements have pushed companies to throw much greater rigor around how they’ve planned and executed their responses to risk events. Companies now are adopting risk management strategies to assess, manage, and mitigate strategic, operational, and functional risks in all shales and sizes. A formalized risk management framework is no longer optional or a nice-to-have.

Still, many companies are way behind the curve. According to risk management trade organization RIMS, only 17% of organizations have implemented company-wide risk management to look at risk categories like operational, legal, financial, compliance, IT, strategic, market, and health and safety risk in total – not in siloed isolation lacking an “enterprise view”. To a large degree, internal audit has been commonly given ownership of cross-organization collaboration.

If you’re in the camp that hasn’t implemented a risk management strategy or is only doing it in some, but not all, areas of the business, consider placing more (or some) focus around strategic risk management. Reason being is that according to the research firm, Corporate Executive Board, 70% of the risks that cause the most harm to corporations are strategic risks.

What is strategic risk, you ask? Well, it’s any risk whether it exists today or may crop up in the unforeseeable future that could force the company to change, modify, or overhaul its business strategy forcing it to change the way you do business. RIMS defines it as “a business discipline that drives deliberation and action regarding uncertainties and untapped opportunities that affect an organization’s strategy and strategy execution.” Still too ambiguous? Well, think of it as defining what risks could be applied to your company’s product lines, M&A actions, economic conditions, overall business model, or baseline assumptions that come into play when defining the business strategy. This is one reason bringing the risk team into the business strategy sessions is essential. The Risk Management team (or their leader) needs to have a seat at that table. More often than not the CFO, given his or her management of financial and operational risk, owns strategic risk. Gone are the days where the CFO is simply in charge of reporting prior year numbers – long gone. In this case, CFOs are the overseers of risk while delegating the task of ‘selling’ the concept to departments outside of finance.

It was reporting in a 2011 Accenture survey that 39% of the organizations surveyed said that risk managers have a seat at the company objectives-setting table; In 2009, it was only 27%. It’s getting there but needs to be at 100%. Rome wasn’t created in a day but headway is being made.

In summary, if you’re new in adopting a formal risk management strategy, given that 70% of the risks that cause the most harm to corporations are strategic risks, take a look at starting with strategic risk management. Then, attempt to apply financial metrics to these risk events and how they align with your business plan. You want to be asking questions that look at your strategic assumptions, specifically what if they’re wrong. An example is, what if you’re expected EPS growth is X% over the next 5 years…Ask yourself, what’s stopping the company from getting there? Also, try setting up a risk committee to review the risk events in question and explore the outcomes and the company’s response(s) to these events. Don’t take this on yourself. Tackle strategic risk first.

One summer’s day, a rooster scoured the barnyard looking for food. As he scratched the straw on the ground he uncovered a jewel. The rooster suspected the jewel might be valuable because of the way it glittered in the sun.

“The object is probably worth a lot”, the rooster thought to himself, “but I’d trade a bushel of these shiny things for a single kernel of corn.”

——————————–

The primary moral, of course, is that beauty is in the eye of the beholder. …But, there’s something else to be learned from Aesop’s fable. What would have happened if the rooster had seen the bigger picture beyond his simple need for a little sustenance? He certainly would have known that the jewel could fetch much more than, “a single kernel of corn.” Because he lacked access to basic facilitators from which to discuss this discovery not much was to be gained from it. Imagine if he had collaborative access to his peers, including perhaps more wise and worldly roosters and hens with greater influence and relationships with other rooster groups, large villages, or other rooster- or hen-run businesses? If so, he might have been able to draw greater value out of this discovery. Workgroups could have been quickly setup to weigh options and determine how best to use this newfound resource. One might learn through this group involvement that the ‘jewel’ should be invested for a later date when times are not as prosperous? Maybe it could be used to purchase new equipment to update the existing company’s plant & equipment or analytics technology? Maybe it could be used in smaller bits to payoff the dreaded fox community to keep them at bay from invading the sanctity of their henhouse?

Because the enabled collaboration and feedback mechanism didn’t exist the Rooster was willing to settle for the hear-and-now need. Only he benefitted from this, not the other roosters and hens or the local community. Unfortunately, it only solved an isolated need and wasn’t effectively exploited.

This scenario is obviously entirely made up but there’s a great degree of truth in it, especially how it can impact a business enterprise. Look, ‘jewels’ exist in every organization. They don’t always make themselves known. Basically, good ideas don’t only come from the top. Or, “there isn’t a monopoly on ideas coming from only the executive suite.” They come from all over the business and can have high- or low-impacting repercussions: good and bad, that is. It’s what happens with these ideas after they’re learned that matters. A collaborative platform for wide participation in enterprise planning, budgeting and forecasting is the enabler that can take those jewels and turn them into something far more valuable that can benefit the entire organization. The key is capturing this information so that it can be acted on. Missed opportunities happen in business all the time. The individual contributors, managers, directors, and even vice presidents not to mention the C-level executives all have insights and performance-impacting contributions that can benefit the organization. But unbeknownst to the executive team, these ideas and insights into the business get lost unless there’s a channel in place for that feedback to be captured or heard.

We know the workforce is filled with employees’ great ideas; McDonald’s Big Mac Sandwich, 3M’s Post-It Notes, Sony’s Walkman, and Dunkin’ Donuts’ Munchkins are just some big-bang examples. All over the organization there’s cost savings and process efficiencies (streamlining order-to-cash), growth opportunities (expanding into new markets and product lines), and a risk awareness (unforeseen commodity/raw material price changes) that front-line employees, middle management, and even back-office workers have visibility into that necessitate a feedback loop so they are captured and acted upon.

and its planning, budgeting, and forecasting capabilities not to mention analytics power can promptly facilitate the ideas exchange process through managed contributions and enterprise-scale input and high-powered analytics with enabled comments facilitates best practices and the enterprise wide collaboration necessary to drive, monitor, and understand the business better.

A full range of enterprise planning software requirements is supported—from high-performance, on-demand profitability analysis, financial analytics and flexible modeling to enterprise-wide contribution from all business units.

Personal scenarios created with advanced personalization enable an unlimited number of ad-hoc alternatives so individuals, teams, divisions and whole companies can respond faster to changing conditions.

Best practices suc

h as driver-based planning and rolling forecasting can become part of your enterprise planning process.

Model design and data access adapt to your business process and present business information in familiar formats.

Managed contribution makes it possible to assemble and deploy planning solutions for your enterprise and collect input from systems and staff from all divisions and locations, quickly consistently and automatically.

Integrated scorecarding and reporting— the complete picture from goal setting and planning, to measuring progress and reporting—is possible with IBM Cognos Business Intelligence.

Total control over planning, budgeting and forecasting processes is provided to Finance and lines of business.

A choice of interfaces—Microsoft® Excel®, Cognos TM1 Web and the Cognos TM1 Contributor client—allows you to work with your preferred look and feel.

built-in collaborative and social networking capabilities to fuel the exchange of ideas and knowledge that naturally occurs in decision-making processes today.

helps groups streamline and improve decision-making by providing capabilities for forming communities, capturing annotations and opinions, and sharing insights with others around the information itself.

establish decision networks and expand the reach and impact of information.

provides transparency and accountability to ensure alignment and consensus.

communicate and coordinate tasks to engage the right people at the right time.

The power of personally-assigned key performance indicators, or KPIs, is tremendous. If done incorrectly, KPIs might be used like a drunk would use a light post, for support not illumination. You could call KPIs industry-speak for one method to measure employee, departmental, and/or organizational performance. If effectively constructed, they can drive the right workforce actions supporting strategic and operational objectives. Yes, they could be tied to achieving an operational goal, such as on-time customer shipments, best-in-class inventory turns, or an industry-leading order-to-cash (Finance) or procure-to-pay (Procurement) process. Selecting the right KPIs is very important because they will drive employee behavior.

You might want to consider cross-functionally-shared KPI targets like revenue, EPS, EBITDA, or even gross margin % because an organizationally-shared KPI can reap additional benefits. Making revenue a company-wide KPI can help cement a cross-functional, collaborative, ‘we are all in this together’ corporate culture. It’s human nature to want to work more closely and collaboratively with people that have a shared interest in your success. Of course, there’s going to be KPIs useful to finance (Think Cost of Finance-to-Revenue, or even Close-to-Report days) which will certainly be quite different than marketing’s (Think Validated Leads). Personal and organizational KPIs can make up one scorecard.

So, how many KPIs is the ‘right’ amount? Well, I’ve seen as many as 40 KPIs for certain individuals. Is that a best practice? No. Absolutely not. There are levels of KPIs and, in this particular case, the person in question has their primary KPIs and their secondary KPIs. The primary ones drove their behavior (and, by the way, these primary KPIs determined his compensation as should everyone’s primary KPIs…just sneaking in a best practice approach for ya!) So, to answer the question of what’s is the right amount of KPIs for each individual, the answer is no less than 4 but no more than 12. If really pressed it’s 6 KPIs per employee. If there’s too many they’re probably going to spread this individual too thin while too few KPIs might mean there’s some activity for which isn’t accounted.

The most important element to be aware of is the law of unintended consequences. You want these KPIs to drive the right behavior. Be careful what you measure because it will dictate employee actions, especially if you tie it to compensation (which you should). Conversely though, if you don’t tie these KPIs to compensation then don’t call me if they’re not properly focused. Invariably people do what they like doing if they’re not directed otherwise. They may be comfortable with some tasks versus others so they do what they like doing most. Everything else may be left at the altar. Hello, runaway bride. A set of KPIs by which they’re measured will enforce (stick) the right employee actions while, by the way, tying them to compensation (carrot) helps nudge them in the right direction too.

These personal KPIs ensure people are doing the right things and not working on non-essential tasks that don’t directly contribute to the organization’s or department’s primary goals and objectives. If they don’t you at least can have an intelligent discussion with that employee and/or department to see if the related activities are important enough to continue doing. They also provide a benchmark by which to measure each employee’s progress not to mention being effective at assigning accountability while better aligning the company. To determine KPI targets most companies will look at industry benchmarks for certain KPIs where actual decisions can then be made regarding what’s a reasonable target given not only current conditions but also what the organization’s goals are because these KPI targets need to be aligned with those corporate goals and expectations. KPIs clearly linked to enterprise strategy promotes greater transparency from the ivory tower executive suite down to the people in the trenches. People start thinking about how they can achieve their KPI targets and who the influencers are that can help them get there. They’re collaborating more. They have a sense of purpose now. They know what they’re supposed to do and they’re being empowered to do it. No shades of gray. The corporate culture soon changes. KPIs become the stitching in the corporate quilt. Employees start to learn how to use the KPIs as a guide to clearer thinking in problem solving and weighing multiple options. They’ll start asking questions about what data elements, departments, and individuals (internal and external to the organization) influence their KPIs. This is the epitome of using data to drive better decisions. It’s partly about the actual data put in front of the individuals or teams; the other part is the resulting questions it inspires and behavior it drives. This is the behavior we’re trying to inspire when we talk about the power of analytics and smarter decisions.

KPIS & THE BUSINESS ANALYTICS PLATFORM

Of course, for KPIs to be leveraged most effectively you’ve got the provide the information technology infrastructure behind them to support constant updates to the actual KPI metrics. This would include drill-thru capabilities so that employees, managers, and executives can quickly and easily learn why they’re on- or off-target for each KPI, say on-time customer shipments, by drilling-thru for more detailed reporting and analysis. Once they’ve explored the reasons they’re on- or -off target, they’ll then need to be able to quickly run scenarios to see the operational and financial effects of each option to help them determine the best course of action based on this analysis. At this point, the forecast is updated to reflect the decision made and its expected outcome(s). This is business analytics. This platform is the holy grail of fact-based decision making for enterprises today. Yes, I know just when you were getting comfortable with Performance Management as a business practice we throw Business Analytics into the mix.

To further reinforce this concept, think of Business Analytics as a single platform of tightly-integrated solutions empowering users to run their ‘personal data analysis’ where each employee can easily measure and monitor – when possible, in real-time – their KPIs through a dashboard or scorecard. Once they’ve evaluated their KPIs in their dashboard or scorecard, they’re able to drill-thru within the same screen on that metric in question to understand why this item is reported as such (Why are we off- or on-target?). Now, they’ve got real context around why they’re on- or off-target. Perhaps, they discovered there’s been a shortage of inventory in their Denver plant or poor weather in northern Europe caused a critical shipment of product to be delayed. At this time they can perform scenario and predictive analytics to evaluate different options to resolve this issue. Once an option has been determined the results can be updated in the enterprise forecast.

These actions are nothing new. It’s simply that all of this would be done in a single, integrated platform to run through this decision-making process in its entirety. The real question is, how difficult is it for each employee, manager, and executive to get this type of information which we know they need to make their day-to-day decisions not to mention the more strategic decisions? Better yet, are they even getting this level of information in the first place?

For now though we’re hear to discuss KPIs. KPIs drive behavior through better alignment, accountability, and transparency across the business. We’ll explore further in future posts.

Between now and then, here’s a quick exercise: Think about how your KPIs are created today. Are they manual or automated? Are they trusted by their owners to be accurate and timely? Do they understand what the drivers of the metrics are so they know what actions on their part will influence them? Are these KPIs tied to compensation?

In this blog, I’m going to highlight the critical importance of integrating the organization’s financial plan and the actual finance function in general into the operations department-led sales & operations planning process. Yes, in this sales & operations planning process, or S&OP, where future supply and demand plans are compiled, aligning the S&OP with the financial plan results in greater corporate alignment, improved information transparency, and more timely and effective organizational execution. The finance function needs to lead this effort though they’re already lord-and-master over what seems like too many critical business processes, including financial planning & analysis, treasury, finance transactional processes, compliance, cash management, tax management, and in most companies today, risk management. Adding this role to their agenda seems like it will only exacerbate an already overburdened finance team. My response is that a financial plan (and forecast), for which finance is responsible, isn’t worth the paper it’s printed on if it doesn’t align with the S&OP process. Here’s why:

Operations with finance involved in the S&OP process are able to develop a more robust supply plan and a single consensus demand plan than without finance involved. Yes, with finance actively engaged in the S&OP process, better performance can be attributable to finance, operations, and the executive team’s improved understanding of the dependencies and business context of the S&OP process given finance’s involvement in financial reconciliation to identify errors, inconsistencies and out-of- balance elements of the plan while even reducing forecast bias given finance’s role as an objective participant in the S&OP process.

The key in all of this is that each plan needs to be on a common, integrated platform, with the same level of financial and operational data detail available to both. Granular alignment is critical. This way the impact of changing an assumption or parameter on either end can be seen from a financial and operational perspective. Sure, planning parameters are still unique to each, but the impact of a parameter or assumption change in one domain is directly reflected in the other. Imagine the benefits resulting from this alignment??? Indeed, the insights developed through this integrated process enable the allocation of resources and alignment of commercial and operational activities to support the real revenue and profit drivers of the business: your customers, products and services!

Other outcomes are that the quality of the sales and operation plans themselves improve. In addition, there becomes a corporate culture shift to a more long-term, strategic focus. Everybody’s able to see the financial implications from their operational decisions. It puts everything in greater context for both sales and operations, which in turn helps the executive team make smarter strategic decisions because they’ve got greater insight into the financial and operational plans. The focus is on strategy and not on simply the veracity of the numbers. Also, improved buy-in and commitment to plans from the business results and increased cross-functional collaboration, financial modeling and planning assumptions materializes too.

Other things to consider to help jump-start this process are:

Get CFO involved in the process as an owner or co-owner communicating why finance is becoming more involved in the process and what the expected outcomes will be

Determine a common method across each planning domain for calculating the financial implications of plan changes

Set a short-, medium-, and long-term strategy for aligning these two planning domains;

Assign an overall program manager for this effort

Align these two processes on a single, technology platform that can manage each domain’s planning, forecasting, and reporting current and future needs.

I encourage you to check out IBM Cognos TM1 which has the capability to manage massive data volumes at SKU-level detail with embedded controls, simplified modeling capabilities, and ease-of-administration functionality to streamline all of your planning, forecasting, budgeting, reporting and analytic needs. It’s what I call the ‘Swiss Army Knife of Technology Solutions’.

Imagine
entering the cockpit of a modern jet airplane and seeing only a single
instrument there. How would you feel about boarding the plane after the
following conversation with the pilot?

Q: I’m surprised to see you operating a plane with only a single instrument. What does it measure?
A: Airspeed. I’m really working on airspeed this flight.

Q: That’s good. Airspeed certainly seems important. But what about altitude. Wouldn’t an altimeter be helpful?
A: I worked on altitude for the last few flights and I’ve gotten pretty
good on it. Now I have to concentrate on proper air speed.
Q: But I notice you don’t even have a fuel gauge. Wouldn’t that be useful?
A: You’re right. Fuel is significant but I can’t concentrate on doing
too many things well at the same time. So on this flight I’m focusing on
air speed. Once I get to be excellent at air speed, as well as
altitude, I intend to concentrate on fuel consumption on the next set of
flights.

We suspect you wouldn’t board the plane after this discussion. Even
if the pilot did an exceptional job on air speed, you would be worried
about colliding with tall mountains or running low on fuel. Clearly,
such a conversation is a fantasy since no pilot would dream of guiding a
complex vehicle like a jet airplane through crowded airspace.

This is an often cited story by many business strategists and other
management prognosticators which I will attribute to Drs. David Norton
and Robert Kaplan, pioneers of the Balanced Scorecard. It’s intended to
reflect how critical the actual indicators are that we setup for not
only pilots but also the indicators by which you establish for your
entire workforce because these indicators will serve as the guiding
force behind their decision-making.

Why is this so important? Well, many reasons starting with the
business environment has substantially changed where no longer can a
company operate rudderless without a core set of metrics to steer each
of its employees individually and as a collective unit in the right
direction. That right direction is the enterprise strategy. The speed
at which these decisions are being made seem to have increased
exponentially in just in the past 5 years. The days of top-down,
command-and-control authority over decision-making are far from over in
deference to a more nimble, decentralized execution hierarchy intended
on keeping pace with the velocity of the related competition and
customer expectations. The need for getting relevant and actionable
information to the business users has never been more pronounced than
we’re seeing today. If you can’t react fast enough to the market
realities your customers will go elsewhere. We live in a world where
product or brand loyalties are becoming more and more a thing of the
past. It’s about execution. Good execution is about making smarter,
more informed decisions that support the organization’s goals.

These decisions being made are happening across all levels,
geographies, and functional areas of the business everyday. For this
post I want to zero in on the first question asked which falls under
measuring and monitoring the business. This question is, how are we
doing?

Sure,
the executive suite is constantly measuring and monitoring overall
business performance to ensure the company is on track to meet its
strategic targets. In addition, the function leads in marketing, sales,
finance, HR, and development all the way down to the individual
contributor levels of the organization are measuring and monitoring the
performance of their area of the business too. But how does everyone
know they’re doing the right things at all times? What are their real
priorities helping the organization achieve its goals? Is it
guesswork? Is it trust-based that the entire workforce is going to
naturally make the right decisions supporting top-line goals? How can
we be so sure?

This fictional story referenced at the beginning of this post is
really about measuring and monitoring – not an aircraft – but your
business thru a tool called a scorecard.
There are personal, departmental, and enterprise scorecards. A
scorecard includes the key performance indicators, or KPIs, for which,
in the case of a personal scorecard, an employee is responsible which,
if these KPIs are correctly defined, would include measurements that,
when looked at in aggregate, support the enterprise’s top-line strategic
goals and objectives. Inevitably, there will be shared targets for some
of the KPIs in a personal scorecard either within a specific functional
area of the business (Think Marketing Director/Marketing Associate
having similar campaign targets) or as shared KPIs across functional
groups like marketing, sales, procurement, and development/manufacturing
for something like overall corporate sales targets. To illustrate what
I mean, if the organization has a revenue target of 15% annual growth
each of these functions might also have the 15% target in their KPIs.
Of course alone none of these groups is solely responsible for achieving
that total growth target but this enterprise target is still one of
their KPI’s. This shared goals can incent these groups to work more
closely together given that it’s mutually beneficial for these teams to
work together because they’re all needed to make this corporate goal.
Also, there are typically individual KPIs for their own controllable
element of that 15% growth figure that might apply. Sales will play a
role in this 15% growth target by needing to make actual sales to
existing and new customers accounts; Marketing is also integral because
they will have to generate enough pipeline to contribute to those sales
figures; Procurement will need to make sure the appropriate amount of
labor, materials and supplies are available to produce enough product;
and, Development/Manufacturing will need to have enough finished product
ready for shipping in time to meet these customer demands. Each of
these functions and the people working within these functions would also
have their own more specific KPIs that outline what their required
contribution is to achieve this top-line revenue growth goal that will
typically be measured within the respective functions too. Make sense?

The
actual KPIs – typically there’s about 6-10 for each individual – are
critical because they will define the actions taken by the individual
for which they’re responsible. The ultimate alignment via scorecards
composed of KPIs across these business groups, departments, divisions,
business units, etc. is the embodiment of what we call a company’s
strategy execution framework.

Harvard Business School having done a study on this framework found
that, “a 35% increase in Strategy Execution leads to 30% gain in
shareholder value”. That’s a pretty strong argument for at least taking
a harder look at it.

How do you deploy such a framework, you ask? Well, in theory it’s
very simple. You just translate the business strategy and its related
goals into a set of performance indicators that outline the targets for
which each department and employee within each department are
responsible and away you go, right? Yes, I know. It sounds easy in
theory. But, in practice it’s a little more work.

The key is working top-down with each business and support unit area
to translate their contribution towards meeting these higher level
targets so that these lower-level, cascaded measurements, or KPIs, will,
when rolled up in total, directly tie to the top-level enterprise’s
strategic goals. This ensures proper alignment of the organization
while providing an ongoing set of metrics by which the workforce can
measure themselves.

Even more important in defining the right KPIs is the understanding
that whatever the indicators are, this will determine the individual’s
behavior so take care as you define these. Something else that makes
this framework so effective is that it makes it that much easier to
reset the workforce when those top-level strategies change. the
infrastructure is in place to restructure the scorecards. This allows
the company to adapt more quickly.

Think about deploying such a framework for your organization. The
best incentive I can give you for taking on this effort is that going
through the KPI definition process for each set of scorecards it forces
discussions across functions, within departments and at the executive
level that will expose how achievable these targets really are with the
current resources in place today and who is ultimately responsible for
what. This is just about the most important exercise I think a company
can go through to make sure it’s not setting itself up for failure
because its strategy isn’t attainable given the resources currently in
place. Once this KPI definition process is complete and everyone knows
who’s doing what and where the synergies lye it’s all about execution.
This framework sets companies up to execute well because they’ve already
identified their needs and resources at their disposal and now it’s a
matter of delivering. It’s go time.

If done right this will be the outcome for your organization:

Workforce is engaged in this process arguing the questions about
what the targets are, how to achieve these targets, searching out
solutions, debating resource needs and actions, and reaching specific
and practical conclusions.

Ultimate enterprise-wide agreement is made on the KPIs where
everyone agrees on their commitments for getting things done and accepts
those responsibilities.

Given the share and collaborative ownership of some KPIs, processes
are more tightly linked to one another, not compartmentalized among
staffs.

Through this exercise the strategy takes account of people and
operational realities. Through the debates and bartering between
managers, directors, executives within and across functional areas, an
enlightened awareness of what everyone is responsible for and whether or
not they have the resources to accomplish it is realized and addressed.

People are chosen and promoted in light of strategic and operational plans.

Operations are linked to strategic goals and human capacities.

Most important, the leader of the business and his or her leadership
team are deeply engaged in the People, Strategy and Operational
processes – not just the strategic planning or the HR or finance staffs.

Lastly, this serves to expose gaps in execution levels and important resource needs.

More coming on this subject. Stay tuned. In my next post I’ll tell
you some of the best practices in defining the right KPIs for personal
scorecards.

The ugly truth of this phrase rings true in the case of battles that
never occurred in the American Civil War. For those unfamiliar with
this war the American Civil War occurred during the mid-1800′s from
1861-1865 on U.S. soil. It was fought between the North (Union States)
and the South (Confederate States) and was primarily triggered by the
election of Abraham Lincoln in 1860. Its definitive starting point
occurred on April 12, 1861 at 4:30am when the first Confederate shot
hurtled into Fort Sumter, a Union stronghold, sitting at the entrance to
the harbor of Charleston, South Carolina.

The conflict continued until a final peace was made at Appomattox
Court House on April 9, 1865 between Union General Ulysses S. Grant and Confederate
General Robert E. Lee. At the outset of the war, the North was better
organized, better equipped with a much larger conscription of troops not
to mention having far more resources at its disposal than its southern
counterpart. Despite the South’s opening victory at Fort Sumter, a
largely symbolic victory for the South, many predicted the North would
prevail swiftly and decisively. In 1861, President Lincoln was
resolutely confident that a string of Union victories as they marched
their way from Washington, D.C. to the seizure of the Confederate
capital of Richmond, Virginia would be enough of a blow to the Rebels
that the Confederates would be forced to give a total surrender. The
key for this surrender to be given though was that the Northern Army
needed to move quickly from their current position in Washington, D.C.
down to Richmond to dismantle the South’s capital and central command
post: without the shepherd (Richmond) the sheep (Southerners) would lack
direction forcing an end to the war. All pointed to an assured victory
for the North. Or so it seemed. “On to Richmond!” was the northern
cry. Lincoln gave the job of leading the Union Army to General George
B. McClellan. McClellan was revered for his many talents. Smart,
pedigreed, and more than capable, McClellan had the trust of all
Northerners. March to Richmond, plant the Union Flag and McClellan was
assured to be a hero. As I mentioned earlier, no battle never fought
was ever won. Despite overwhelming odds in his favor and indisputable
evidence that his army far outnumbered the Southerners, General
McClellan repeatedly hesitated to march his troops into battle against
the Confederate army which stood between him and his ultimate objective,
Richmond. The Confederate capital at the time of his hesitations was
literally within McClellan’s sights but he never made it there because
he failed to act. Instead, after a few defensive squirmishes with
Southern forces and despite multiple requests from Lincoln to fight,
McClellan all-too-eagerly retreated hat-in-hand back to Washington, D.C.
giving up ground to the South’s General Robert E. Lee who made an
aggressive march northward to Antietam into Northern territory. What a
turnabout. I wonder if this is what prompted Lincoln to later say, “I
can make more generals, but horses cost money.” Obviously, Abe had to
mind his dollars and cents now given that this would be a long and
protracted war.

My point isn’t to denigrate the character of General McClellan. Not
at all. He did many exceptional things in his life of which he should
be proud. What I mean to do is to illustrate an example where sitting
idle, even when there’s overwhelming evidence to support taking that
action, is a missed opportunity. We’ve all done this in one way or
another. We wait to act. It happens to the best of us. A lot of times
taking action on something means change from the norm and, regardless
of the ultimate benefits, we can resist that change because, well, it’s
change. These reasons alone are what cause a lot of people to hit their
personal pause button and not do anything.

Let’s
look at this from a different perspective. Have you ever had your
master bathroom redone? If so, then you’ll know what I’m talking about.
Tons of benefits here. Maybe you’d be getting a new jacuzzi tub, a
nice steam shower and even more cabinet space not to mention your own
sink this time around… Still, most resist a project like this because
it’ll mean losing your bathroom for quite some time before it’s ready
for prime time. Big benefits to upgrading your bathroom but there’s
certainly going to be some inconveniences (read change) before it’s
usable.

No matter how necessary the project is whether it’s redoing your
master bathroom or marching regiments of 100,000 men into enemy
territory don’t let the forces of hesitation get the best of you. Yes,
there will be initial adjustment pains as you go through the process but
keep your eye on the ultimate prize – and, when applicable, make sure
you’re keeping everyone else’s eye on the prize too.

If you see measurable benefits justifying an investment in something,
try to see the benefits beyond the initial ramp up time and just go for
it.

(Shameless plug) If you’re thinking of deploying Business Analytics
solutions to enable critical business processes at a minimum take stock
of what the possibilities are. Look at your processes such as the
following:

…take stock of what the best practices are in one or two of these
areas and see how your company measures up. Perhaps this is an
opportunity to drive a planning & analytics optimization initiative
across finance and the rest of the organization (Check out IBM Cognos TM1). Or, maybe you want to look at automating your financial statement reporting practices (Check out IBM Cognos FSR), or even review your risk management practices (Check out IBM OpenPages).
Look at the processes first. See what’s preventing these processes
from being at a best practice level. There could be many reasons for
this. After you’ve done this take a look at the enabling solutions that
are out there that address these processes. Whatever it is don’t
hesitate because there might be some additional work in the
investigation phase or in the technology implementation phase because,
once it’s up and running, you’ll be glad you did.

The measurable benefits in adopting these solutions, such as
automation, embedded controls, workflow management, minimal
administration, etc. which allows for higher frequency forecasting,
stronger analytic capabilities, access to real-time reporting, effective
scenario analytics, best-in-class predictive analytic capabilities,
rigorous statutory reporting & risk management enablement, etc.,with
you championing the project can be your path to success while the
organization benefits from the bottom line ROI. Everybody wins. You
can become the figurehead for it too because you acted on it.

Yes,
IBM Cognos TM1 is like a Swiss Army knife – it has capabilities to do a
lot of different things extremely well. One of the practices it’s
being utilized for with incredible results is an emerging, but no so
well understood, practice entitled profitability modeling and
optimization. The power of IBM Cognos TM1 is the primary reason this
practice has emerged. Companies adopting IBM Cognos TM1 as the
technology of choice for this practice is the primary reason they’re
thriving moving from ‘also rans’ to industry leaders. Still, this post
is less about IBM Cognos TM1 and more about the process, Profitability
Modeling & Optimization.

When talking about profitability modeling & optimization it’s
more illustrative to start with the ever-important strategic element of
price. It’s that set amount that can make or break a product or service
or even the company’s acceptance by the marketplace. Price, of course,
is most often set by what the market is willing to pay for this product
or service. A lot of factors can go into your pricing strategy
including things like the brand equity and image of the product or
service (Think Tiffany’s), expected sales volumes (Think economies of
scale), competitive factors (Only game in town?), or if it’s a new
category being created. Of course, we know that companies profit by
selling this product or service at a margin greater than its cost.
Then, a profit is turned.

Now, what you do with those profits is then up to the company to
decide. Do you reinvest those profits? Most do. If so, how do you
allocate them across the business for the most profitable return?
Maybe you even want to release some of them to shareholders via
dividends? What about making acquisitions? These are important
decisions to make based on what the future needs of the business are.
This is a good problem to have.

Enter Profitability & Optimization.

To sustain competitiveness in the marketplace organizations must be able to model their profitability to maximize profits and optimize the components to profitability that incur costs.
Most companies are performing some form of profitability and
optimization activities everyday. The BIG difference is that some are
much better at it than others. Why is this? What separates them from
the others? It comes down to the best-in-class organizations investing
in their people, the related processes, and a capable technology.

Ask yourself the following questions:

What degree of insight do you have into product, customer, and market profitability?

How timely and reliable is this information?

Is the information in one system or do you have to make phone calls,
send emails, query multiple databases and compile it together into a
spreadsheet to make sense of it and even then it’s incomplete?

Can you perform ad hoc analysis on that information to answer
questions about the data to complete a thought process or run a
scenario?

Are you able to quickly understand anomalies/outliers in historic data?

Are you able to quickly explore cause and effect?

Do you understand the drivers that both impact and are impacted by price & cost?

It’s critical to know that every area of the business is looking at
some element of profitability. Running scenarios, what if, and
profitability analysis with a 360-degree viewpoint of the data is the
lifeblood of value-added analysis for making smarter decisions which, if
done effectively, translates into better corporate performance.
Without better insight and understanding of the information derived from
profitability modeling and optimization, business users are forced to
go on their gut and/or out of date information — or, worse, they’re
waiting until they do get the information they need before they can
act…tick, tick, tick. Time is money.

If you and the rest of the workforce don’t have this information at
your fingertips don’t fret because you’re not alone. However, things are
changing. Companies today are investing more and more into this
practice area as technology has caught up in a way that’s allowing for
massive data volumes to be sliced-and-diced in seconds for this very
purpose.

Now is the time to act. The technology is there so I’d ask why isn’t
your organization there too. Hustle up. I know a lot of companies
that are doing this practice very well – and some that aren’t
unfortunately. They’re the ones looking to leverage IBM Cognos TM1 to
put them on the path to better PM&O.

If you want to know more about this subject feel free to email me to discuss further.

Whoever said, “you can’t take it with you” definitely wasn’t thinking of IBM Cognos Mobile. IBM Cognos Mobile offers the same simple, easy-to-consume, reliable and secure capability of IBM Cognos Business Intelligence with the equally powerful and visual on- and off-line experience. Yes, users can view, analyze and share reports from anywhere just like they can with IBM Cognos BI only now it’s on a mobile device. Whether you’re traveling, in a meeting, away from your computer, or at home these actionable reports go with you and your device of choice which allows you to seamlessly view and interact with any report or dashboard, while providing capability for deeper analysis and much more—anywhere you happen to be. So, you can take it with you.

Sidebar: In 1936, when George S. Kaufman and Moss Hart wrote the play, You Can’t Take It With You, they had a totally different concept in mind than mobile reports. Regarding this play, which, by the way, was subsequently turned into a major motion picture of equal caliber to the play, I can only offer this simple advice: See the movie. Yes, it’s old and in black-and-white which might be a turnoff for some of you. But, still, the writing holds up so well you won’t even notice anything but yourself laughing throughout. It’s a winner. Trust me if you can. If that’s not enough the play won a Pulitzer Prize and the movie won an Academy Award for Best Picture. Pretty good endorsements there.

Okay. Back to IBM Cognos Mobile.

Another thing about IBM Cognos Mobile. Check out the location-aware technology too. It’s one of the nicest features of IBM Cognos Mobile. Imagine the possibilities with this feature as it allows you to quickly get access to the most relevant data points based on your specific location without having to search for it. It automatically brings up the location-specific information based on your physical position. Very cool. Think that if you’re in Seattle, Washington meeting with a key customer and they want to know about other customers in the area you have that ready for them. Simple. Pull up your global customer report which will quickly filter it down to only show you the local accounts. Not bad. That’s just one simple scenario and there are tons of others being utilized by IBM Cognos customers right now.

Of course, a lot of the same features you get with IBM Cognos BI you also get with IBM Cognos Mobile including Drill up and drill down, drill through, zoom in and out, and cell highlights not to mention search capability.

There are many other features to IBM Cognos Mobile but I’ll leave the demo to show you all of that. Check it out. It’s only about a minute and worth giving it a look.

When I think about the capabilities of our IBM Cognos FSR solution it
reminds me a lot of Aesop’s fable about the Ant and the Grasshopper.
It’s about preparing today for more challenging times. If you don’t know
this fable I’ve included it below as it’s so short it’s not worth
paraphrasing. The story goes like this:

When
I think about the capabilities of our IBM Cognos FSR solution it
reminds me a lot of Aesop’s fable about the Ant and the Grasshopper.
It’s about preparing today for more challenging times. If you don’t know
this fable I’ve included it below as it’s so short it’s not worth
paraphrasing. The story goes like this:

One summer’s day, a merry Grasshopper was dancing, singing and
playing his violin with all his heart. He saw an Ant passing by, bearing
along with great toil a wheatear to store for the winter.
“Come and sing with me instead of working so hard”, said the Grasshopper “Let’s have fun together.”
“I must store food for the winter”, said the Ant, “and I advise you to
do the same.”“Don’t worry about winter, it’s still very far away”, said
the
Grasshopper, laughing at him. But the Ant wouldn’t listen and continued
his toil.
When the winter came, the starving Grasshopper went to the Ant’s house and humbly begged for something to eat.If you had listened to my advice in the summer you would not now be in
need,” said the Ant. “I’m afraid you will have to go supperless to bed,”
and he closed the door.

Get your house in order so that when the onslaught of work comes you
can focus on the right things. IBM Cognos FSR is one of those solutions
that helps with that “preparation” and the FSR solution can grow with
those changing regulatory, compliance, and performance reporting
requirements. I spoke with our Product
Marketing Director, Dan O’Brien, about IBM Cognos FSR and how he
explains the capabilities to our customer base. He said the hardest part
is explaining how transformational this software is for finance
departments. It’s almost like “selling cars to people still
using a horse-and-carriage. This solution is so far advanced that a lot
of customers find it hard to believe that it can really work that
seamlessly.” No buggy whips required. I’ve seen the technology in action
and its pretty incredible.

Look, we all know that today’s hyper kinetic, ingloriously
competitive business climate is calling for organizations to react and
respond more ably than ever before while at the same time these
organizations are being asked to comply with increased regulatory,
compliance, and external reporting requirements showing no signs of
abatement.

Analytically-driven organizations are not wasting time while these
ever-changing, always demanding disclosure management-related processes
spiral out of control. At risk is more time robbed by these lower value
activities from the real analytical and predictive research finance
needs to be doing that’s the most value added. Also, we know the
outcome of reporting late or reporting the wrong numbers. Why not take a
look at IBM Cognos FSR???

Top performing companies have found a way to manage these additional
regulatory and external reporting requirements through the use of IBM
Cognos FSR. This solution has raised the bar in not only managing the
disclosure process, including XBRL capabilities, but this solution also
has assisted organizations with their performance reporting needs too.
This solution can automate and manage the complex tasks of collecting,
editing and reporting various performance and financial data for
finance, treasury, reconciliations, portfolio and asset management,
audit, and risk management, etc.

Reporting now requires structured and unstructured information which
is highly susceptible to errors, especially when handled manually to
edit, review, and publish that data into narrative management reports.
So get out ahead of these manual intensive, error-prone processes and
leveraging an integrated solution that can automate and effectively
manage these tasks because the pace of change for what’s being expect of
the office of finance and it isn’t slowing.

I encourage you to take a look at IBM Cognos FSR and see what it can
do for your organization because there’s only more changes coming. Be
prepared for it with IBM Cognos FSR.

“The art of war teaches us to rely not on the likelihood of the
enemy’s not coming, but on our own readiness to receive him; not on the
chance of his not attacking, but rather on the fact that we have made
our position unassailable.” – Sun Tzu

If asked to describe their financial consolidation process most corporate finance teams might spit out a few unprintable adjectives as they attempt to explain their effectiveness in harnessing all of the moving parts in this bear of a process. The primary issue they have is managing all of the inputs and one-offs throughout each step, making it difficult to track or audit it because of their lack of transparency, visibility and ultimate control over it. Riddled with disconnected systems that have major control risks requiring manual intervention and maintenance (Think spreadsheet-based systems) and other standalone technologies lacking any audit control make it an administrative nightmare. Financial consolidation isn’t a stationary target either given the ever-growing mountain of new regulations, report filings, and financial governance procedures required to which they need to adapt. (Think Dodd-Frank, IFRS, and XBRL to name a few.)As I mentioned in another blog post, “Close, Consolidate, Report & File: Automation & Embedded Controls Else It’s A House of Cards“, there’s so much to manage throughout the FInancial Consolidation process including manual inputs, offline adjustments, in-process reports, and stakeholders to keep a handle on it all. We’re not talking about nice-to-have reports here. We’re talking about reported Balance Sheets, Cash Flow Statements, 10Ks and 10Qs and other monthly, quarterly, and annual reports that go to shareholders, The Street — and, oh, by the way, these results are the primary drivers of business decisions being made across the organization to run the business. Hard to believe more organizations haven’t adopted an end-to-end solution to produce credible, timely, and reliable results while allowing finance teams to really focus on the important stuff like analyzing the results, not compiling them.

To set a little context I’ll briefly walk through a sample consolidation and reporting process. See if any of this sounds familiar.

Simplified Global Consolidation Process

Imagine we’re dealing with a North American-based organization in Milwaukee, Wisconsin that has subsidiaries and international operations throughout the world. The consolidation process starts with this corporation’s subsidiaries and country-specific operations consolidating their data and producing financials for their own legal entity relationships for their local reporting and local ownership and tax purposes. These same entities capture their ‘local’ data in their ‘home’ currency through their own general ledger systems and/or receive data from manual inputs and manual processes via tools like spreadsheets. At this point the subsidiaries and countries will prepare trial data submissions in local currency which will then be fed to the corporate finance department in Milwaukee. Typically, files are securely sent to corporate as uploaded to a common repository for corporate handling. Usually, there’s a lot of back-and-forth communications with these entities and corporate while they’re preparing their data.

Corporate finance receives these data submissions from all of the subsidiaries, country operations, and/or legal entities and consolidates this information into a common reporting currency; in this case, US Dollars. From there, corporate finance will perform additional consolidation activities including inter-company eliminations, group adjustments, such as investment eliminations between subsidiaries, and, ultimately, they will perform the final financial consolidation. Once these activities are completed they will then go through the process of analyzing the financial results and circle back with different participants in the consolidation, i.e. subsidiaries, legal entities, regions, etc. and relevant stakeholders in the process where variances are to be explained. Comparative reporting is then done across periods (last year vs. this year) or against plans (budget vs. actual) or even against budget foreign exchange rates to take out any f/x anomalies which might skew the data. These results are then fed into the management reporting and corporate planning process where the real analytics and decision making ultimately takes place. Then, for financial governance, statutory financial results need to be prepared and signed off for external reporting for investors, analysts, and regulatory agencies.

Phew…and that was a VERY simplified version of this process. Believe me, there’s a lot more to this process.

Cognos Controller is a comprehensive, Web-based solution that offers power and flexibility for streamlined, best-practice financial consolidation and reporting – all in one solution. Its full suite of capabilities delivers a complete portfolio of financial results and provides an integrated platform for financial and management reporting. Cognos Controller makes it easy to deliver financial statements and reports to finance stakeholders, as well as managers, line-of-business executives and regulatory bodies. It also provides the de facto starting point for planning, budgeting and other performance management processes.

Built in integration with IBM’s performance management solutions, including IBM Cognos TM1 for extended analytical reporting and business planning for further viewing of financial and operational results, comparative plans, and extended Financial/Management reporting;

Real-time link to your consolidation with IBM Cognos Business Intelligence dashboards and other production reporting tools you might use in our overall product suite;

IBM Cognos FSR is the market leading solution to control, automate and audit the “last mile” of finance, the challenging collaborative collection and assessment of data from multiple sources that must be brought together into important external documents such as 10Q, 10K or annual reports, or highly confidential documents such as board books. IBM Cognos FSR documents can access IBM Cognos Controller data and text directly, enable collaborative approval, and embed the financial information into any report. The connection is permanent, providing for automatic updates as required, including new versions of the document in future years.

Financial Consolidation and Reporting is part of a larger end-to-end process fully-enabled by our IBM Financial Performance Management solutions. In the illustration below you can see how our solutions work together to solve this larger process we call, “Close, Consolidate, Report & File”.

“Get your house in order.” This expression is referenced everywhere. I hear politicians repeatedly using it: “Before we start talking new taxes or entitlement reforms we gotta get our house in order.” Sports figures too: “We had a great practice today but, before we think about competing for the division title, we gotta get our house in order.” Celebrities aren’t immune from invoking it either: “Like, I totally want to hit the party scene again but, since I like just got out of rehab, I like think I need to lay low and totally like get my house in order first. One more thing…do you know where I can get a drink around here?” Okay. Maybe that last one’s a stretch.

Relating this expression to the processes owned by the finance functions at corporations, the house that most often needs to get in order is the Close, Consolidate, Report & File process, or CCRF. The timeliness and accuracy in this process is pivotal for company survival. Still, many companies struggle with this process for many reasons. Some of these reasons are that businesses are still using multiple opaque and rigid systems lacking any integration capabilities to seamlessly align each of the activities like the required disclosures and governance of financial statement reporting. Also, and most frequently, there are poorly trackable and error-prone manual inputs or overrides to the data as spreadsheets and stand alone documents are often used in this process. A lot of companies are using out-of-date and misappropriated tools without any audit-able workflow management system. This time consuming, labor intensive approach leads to unnecessary delays completing the CCRF process in a timely and reliably accurate manner. As a result, there’s little trust from the business users that these performance results are indeed accurate. Therefore, the figures become largely ignored by the business users rendering them useless for business insight. This leaves the workforce normally relying on these results to help make their strategic decisions forced to act on their gut or intuition. Not good….and I haven’t even gotten into the ramifications of disclosing incorrect information to regulators or shareholders!

The Close, Consolidate, Report & File Process

FINANCE: LIKE THE MYTHOLOGICAL ATLAS THEY’VE GOT THE WEIGHT OF THE WORLD ON THEIR SHOULDERS BUT LACK THE MUSCLE TO HOLD IT UP

Finance departments are already overburdened with newfound regulatory, compliance, and financial reporting requirements not to mention new disclosure expectations and the forthcoming global XBRL initiative while being pushed to be more analytical and insightful about “what the data is telling them” in regards to critical business impacting activities like market analytics, customer profitability, predictive analytics, scenario planning, etc. Yes, the rising water level of requirements falling under their purview shows no signs of abatement. Yet, empirical research backed up by the likes of The Hackett Group, APQC and the IBM Global CFO/CIO Studies, shows that these finance departments continue to shrink in size relative to revenue at a time when they should be growing. What’s wrong with this picture???

New disclosure requirements and global XBRL mandates means more work within tight time frame,

while having to respond tointernalpressures from the following:

Evolving role of CFO and the Office of Finance

Need to liberate finance professionals from manual and complex processes

Executive management needs timely and accurate reports to respond to market opportunities in very short time

Changing Events & Regulations Since 1999

THE ANSWER: AUTOMATION THROUGH AN INTEGRATED SOLUTION

A controlled, automated, audit-able CCRF practice is required for finance to be doing the right things. Finance teams are re-engineering their financial close processes to individual close, consolidate, report & file activities. To manage and monitor these processes, they’re investing in integrated solutions that can automate these activities into a unified, secure solution. Implementing this integrated CCRF solution provides instant benefits by automating administrative tasks with embedded controls to allow finance to focus on analysis and other high-value activities. CCRF practices are no longer simply about closing the books, consolidating the data while running inter-company eliminations, minority interest calculations, and currency translations to come up with ‘the numbers’ before finally publishing them out on some financial reports. No, there’s additional disclosures and financial governance required. To get ahead of this one you’ve got to implement a CCRF system to manage it all else the levee will break and we know what happens then.

Find out more about how to automate this process because it’s not going to shrink in requirements. So, get that house in order or I’ll invite that celebrity I referenced earlier over to your house for dinner. :)

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